5/05/2009 @ 6:00PM

Chrysler Creditors Lose Fight For Secrecy

They have been vilified on message boards and called greedy speculators, criminals and vultures. President Obama says he “does not stand with them.” They have received death threats. They’re the hedge funds opposed to the Chrysler reorganization, who desperately tried to keep their identities secret to all but the federal bankruptcy court judge overseeing the case.

But the judge, Arthur Gonzalez, isn’t buying it. Tuesday, he ruled that the group had until 10 a.m. Wednesday to reveal their identities. The group, which describes itself as the group of creditors that did not have to take federal bailout money under the Troubled Asset Relief program, is trying to block the Obama administration’s proposed reorganization of Chrysler.

In court documents Tuesday, attorneys for the so-called “non-TARP” creditors, who own $300 million of secured debt, said intensifying pressure and name calling by the government threatened to harm them if their identities became public.

“The Chrysler non-TARP lenders are afraid,” the court documents say. They cannot argue against the proposed bankruptcy “if that means being subjected to heavy-handed tactics that will threaten their business and safety.”

Some of them have already been outed, including OppenheimerFunds and Stairway Capital Advisors. Another firm, Perella Weinberg Capital Management LP’s Xerion hedge fund, was originally named as one of the dissenters but last week agreed to the government’s plan after President Obama harshly criticized hedge funds that were opposed to it. Yet another fund, Group G Capital, identified itself as a dissenter in a Wall Street Journal article last week.

Senior creditors owe $6.9 billion of first-lien debt in Chrysler. Several big creditors, including
JPMorgan Chase
,
Citigroup
,
Morgan Stanley
and
Goldman Sachs
are supporting the Obama proposal, which will pay them out at 30% of their holdings and transfer the assets of the company to a group led by
Fiat Spa
and Chrysler employees.

The non-TARP lenders wanted to get 60% on their investment. Some observers point out that even under the Obama proposal, some of the lenders would profit handsomely, since the Chrysler debt traded as low as 13 cents on the dollar, and some of them may have entered at that distressed level.

The group got the federal bankruptcy judge in Manhattan to delay a hearing on the auction’s bidding process from Monday to Tuesday, but the judge ordered them to identify themselves.

The Chrysler sale “improperly attempts to extinguish their property rights without their comment,” the hedge funds said in a court filing Monday. “The court should not permit a patently illegal sales process to go forward.”

Chrysler wants the U.S. Bankruptcy Court to approve bidding rules for the auction that would require creditor objections to be submitted by May 11 with the competing bid deadline set at May 15. The non-TARP lenders say the auction is unfair because it keeps them from using their claims to make a non-cash “credit” bid. They point to a footnote that outlines a requirement that competing bids have to have 10% down in cash. That would prevent them from bidding for the company using their secured claims.

Funds joined the non-TARP creditors’ group on the promise of anonymity, lawyers for the group argued in court documents. If their names were revealed, they could drop out of the group or even be pressured into agreeing to the government plan.